PRECIOUS-Gold steady as Trump speech stokes fears of govt shutdown

* Markets subdued after Trump’s State of the Union speech (Updates prices)

By Sethuraman N R

Feb 6 (Reuters) - Gold prices held firm on Wednesday after U.S. President Donald Trump in his State of the Union speech vowed to build a border wall and gave little clarity over the ongoing trade discussions with China, with the bullion’s gains offset by a firmer dollar.

Spot gold was steady at $1,314 per ounce as of 0648 GMT.

U.S. gold futures were also steady at $1,318 an ounce.

Trump spoke in the chamber of the House of Representatives facing political discord over his demands that Democrats end their opposition to funding for a border wall he says is needed to stem illegal immigration and smuggled drugs.

“There is a likely risk of another government shutdown with President Trump still sticking to the rhetoric of erecting a border wall,” said Hitesh Jain, vice president, Yes Securities, adding that a firmer dollar was capping gold’s gains.

“Market participants remain cognizant of the fact that global macro numbers are slowing. Gold as an investment avenue remains very much in the reckoning.”

Trump’s demand for $5.7 billion in funding for a U.S.-Mexico border wall triggered a historic 35-day partial government shutdown, which ended on Jan. 25. Trump has threatened to resume the shutdown if he is dissatisfied with the negotiations.

The dollar index stood near a two-week high.

Meanwhile, Dallas Federal Reserve President Robert Kaplan said on Tuesday that the Fed should leave interest rates where they are until the U.S. economic outlook is clearer, a process that in his view could take several more months.

The U.S. central bank last week promised to be “patient” in rate moves due to impending slowdown and uncertain trade backdrop.

While Trump’s address did not have anything significant on U.S-China trade front, senior U.S. and Chinese officials are poised to start another round of trade talks in Beijing next week, according to sources.

Trump has vowed to increase tariffs on $200 billion worth of Chinese imports to 25 percent from 10 percent currently if the two sides cannot reach a deal by 12:01 a.m. (0501 GMT) on March 2. “For a very short term, the narrowing of trading range (in gold) is possible because the better-than-expected U.S. non-farm payroll makes it less likely for the Fed to be accommodative,” Wing Fung said in a research note.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, dropped 0.18 percent on Tuesday. Holdings have dropped for three straight sessions.

Liquidity remained low with China and several other markets in Asia still closed for the Lunar New Year holiday

Among other precious metals, palladium dipped 0.6 percent to $1,373.22 per ounce.